Amazon Lays Out Its Whole Foods Strategy And Shakes Up Wall Street Anew

SEATTLE, WA - JUNE 16: A visitor checks in at the Amazon corporate headquarters on June 16, 2017. (Photo by David Ryder/Getty Images)

Jeff Bezos isn't wasting any time figuring out how Amazon will integrate its biggest-ever acquisition, the $13.7 billion takeover of grocer Whole Foods. Ahead of the deal's planned close on Monday, Amazon has laid price cuts for wares in Whole Foods stores nationwide and plans to integrate the grocer within its larger e-commerce platform. Once more, Amazon's relentless growth shook Wall Street.

Starting Monday, Whole Foods will cut prices on everything from bananas and avocados to eggs, Tilapia, beef and baby kale in its existing stores nationwide. After a technical integration, Amazon Prime will become a part of Whole Foods' rewards program, offering prime members savings and other in-store benefits. Eventually, popular Whole Foods private label products such as 365 Everyday Value, Whole Catch and pet foods oriented Whole Paws will be integrated with
Amazon.com, Amazon Fresh, Prime Pantry and Prime Now. Finally, Amazon Lockers for e-commerce pickups will become available in some Whole Foods stores.

“To get started, we’re going to lower prices beginning Monday on a selection of best-selling grocery staples, including Whole Trade organic bananas, responsibly-farmed salmon, organic large brown eggs, animal-welfare-rated 85% lean ground beef, and more. And this is just the beginning – we will make Amazon Prime the customer rewards program at
Whole Foods Market and continuously lower prices as we invent together. There is significant work and opportunity ahead, and we’re thrilled to get started,” said Jeff Wilke, CEO of Amazon Worldwide Consumer.

“By working together with Amazon and integrating in several key areas, we can lower prices and double down on that mission and reach more people with Whole Foods Market’s high-quality, natural and organic food. As part of our commitment to quality, we’ll continue to expand our efforts to support and promote local products and suppliers," added Whole Foods co-founder and CEO John Mackey. "We can’t wait to start showing customers what’s possible when Whole Foods Market and Amazon innovate together.”

This, Amazon says, is "just the beginning" as it begins building out more in-store benefits and innovations surrounding logistics and point-of-sale systems. On Wednesday the Federal Trade Commission blessed Amazon's purchase of Whole Foods, clearing the major hurdle to the deal's close and investors are already reacting.

A Whole Foods Market sign is seen in Washington, D.C., June 16, 2017, following the announcement that Amazon would purchase the supermarket chain for $13.7 billion. (SAUL LOEB/AFP/Getty Images)

Once Amazon's plans were unveiled, stocks of grocers, consumer products conglomerates and brick-and-mortar retailers began to plunge. In late afternoon trading,
Kroger fell nearly 8% within multi-year lows, while Sprouts Farmers Market and
Supervalu fell roughly 6%.
Costco Wholesale fell over 4%, while
Target and
Wal-Mart Stores fell 3% and 2% respectively. Grocery aisle giants like Mondelez, Kraft Heinz,
Kellogg,
Campbell Soup and
General Mills all fell more than 2%. In real estate, shopping center REITs like Brixmor,
Kimco Realty, Regency Centers and DDR all fell in late trading.

The selloff indicates investors aren't waiting to see if Amazon's plans in the grocery aisle will take hold, instead they're simply heading for the exits. Last quarter, Amazon saw its revenues rise 25% to $38 billion as it grabs a greater pie of overall consumer spending at the expense of traditional brick and mortar retailers like
Macy&#039;s, JC Penney and
Under Armour. Some hedge funds calculate Amazon's current sales growth rate implies the company is grabbing nearly a third of all retail sales growth, ex autos.

It's not just stock investors who see an impact from Amazon. Some of Wall Street's best minds see Amazon's relentless rise as evidence of dramatic shifts in the overall economy. Rick Rieder, who oversees $1.7 trillion in assets as CIO of global fixed income for
BlackRock, believes disruptive e-commerce giants like Amazon are depressing overall inflation in the United States.

"We’re in the midst of one of the greatest supply-side-driven cost revolutions of all time," Rieder said on Aug. 11, in response to weaker-than-expected inflation figures and pointed specifically to what he deems is the "Amazon effect." How so? Inflation readings are disappointing despite a labor market that has hardly been healthier in a generation.

"We are watching cash flows shift at an extraordinary pace, are seeing powerful disinflationary forces at work, and all while both inflation and labor market volatility reside at extremely low levels," said Rieder. "A large part of what we’re witnessing here could be described as the “Amazon effect,” which is having a powerful deflationary impact on large swathes of the goods economy."

Rieder's theory extends beyond just the "Amazon effect." Across Silicon Valley, disruptive platforms are dramatically changing consumer behavior. Ride sharing companies like
Uber, Lyft and Via are impacting demand curves in the auto and car rental business; auto rental stocks like
Hertz and
Avis Budget have been among the market's poorest performers over the past 18-months, alongside retail.

Perhaps, the "Amazon effect" will come up as the Federal Reserve undergoes its annual meeting in Jackson Hole, Wyoming, where they will meet with key central bankers and debate the health of the global economy and prospective policies. BlackRock's Rieder believes the Fed should reign in its inflation expectations to 1.5% to 2%, from a prior 2% target. Such a scenario would impact U.S. and global monetary policy.

Bottom Line: For now, Amazon is again rattling Wall Street, this time by entering the grocery business. Amazon Prime is poised to now be a powerhouse in everything from e-commerce, to streaming media and grocery shopping.